FCA Flags Concerns Over Motor Insurance Referral Fees

The FCA has recently revisited the role of referral fees in UK motor insurance claims, warning that these arrangements can drive up costs and extend settlement times.

What are referral fees?

These are payments made when a customer is passed from one business to another – for example, when a non-fault driver is referred by their insurer to a credit hire or repair firm. Fees can range from around £30 to over £1,000.

FCA’s findings

The regulator found that involving additional organisations such as accident management companies (AMCs), claims management companies (CMCs), and credit hire or repair providers can:

• Add complexity to the claims process

• Delay settlement

• Increase overall claims costs

Some insurers told the FCA these third parties can reduce operational workload and improve service. Others reported the opposite, pointing to higher fees, longer resolution times, more disputes, and greater fraud risk.

Background

Referral fees have been a contentious issue before. In 2012, they were banned for bodily injury claims under the Legal Aid, Sentencing and Punishment of Offenders Act. At that time, there were calls to extend the ban to credit hire and repair referrals, but these were not taken forward.

FCA’s recommended actions

• Reduce reliance on referral arrangements

• Bring more claims handling in-house

• Remove incentives for policyholders to use AMCs or CMCs

• Challenge excessive third-party costs

Industry response

Most major insurers and trade bodies have avoided public comment. Some acknowledge operational benefits from using third parties, while others see them as a driver of claims inflation.

Recent changes

The Association of British Insurers (ABI) has updated its voluntary General Terms of Agreement with credit hire firms to:

• Improve oversight of hire rates

• Introduce mandatory arbitration for disputes

• Apply tougher penalties where needed

With the FCA now directly linking referral fees to higher premiums and slower claims handling, this area is set to stay under close scrutiny.

The views expressed in this article are those of WHO2 Global Ltd and do not constitute professional advice. All content is for informational purposes only.